Greece will default, but the euro isn't finished

Where have all the Europhiles gone? Almost overnight, politicians in all three parties have stopped defending the euro bailouts. The best Newsnight could manage yesterday was Richard Corbett, a Labour MEP who lost his seat at the last election and now works for Herman Van Rompuy.

Martin Kettle, one of the most committed Euro-enthusiasts in Fleet Street, has written a touchingly honest column in the Guardian, well worth reading in full, declaring that the EU is finished. Having ignored the crisis for 18 months, newspapers and broadcasters are, predictably enough, overcompensating. Correspondents who, a few weeks ago, were singing paeans to the euro are now chanting threnodies over its coffin.

Don’t get ahead of yourselves, gentlemen. It’s true that a Greek default is now inevitable. Indeed, on some definitions, it’s already happening. It doesn’t automatically follow, though, that the single currency will break apart. Just as California can go bankrupt without leaving the dollar, so Greece could theoretically restructure its debts without leaving the euro.

There is no question that Greece should leave the euro. To take the hit of a default without the accompanying advantage of a devaluation would elevate bad government to a whole new level. But never underestimate the EU’s Hideous Strength: its ability to make politicians act against their national interest. Most Eurocrats want the euro to hold together and, as they have amply demonstrated during the present crisis, they are prepared to pay almost any price – or rather, to demand that their peoples pay any price – to that end. Most Greek politicians, too, want to remain in the club. Like their counterparts elsewhere in the EU, they make the classic mistake of believing that, because the Brussels system has been kind to them personally, it must also be kind to their constituents.

“But the EU can’t carry on like this,” you say. No, it can’t, but that hasn’t stopped it yet. Again and again, we empirical British make the mistake of thinking that, because something can’t work, it won’t happen. It’s what we said about Soviet Communism and, of course, we were right. But it wouldn’t have been much fun to have been born in, say, Minsk in 1917 and lived through the process of it not working.

My best guess is that Greece will default within months, and that the monetary union will limp on – battered and cheapened, but intact. Such an outcome, after all, suits businesses in the contributor countries as well as Euro-integrationist politicians. As I’ve argued since the crisis began, the real threat to the peoples of Europe is not that the euro won’t hold together, but that it will.